Wednesday, May 4, 2011

Make people employable

Australia is sitting pretty. We avoided the worst of the global financial crisis and now the return of the resources boom means the world is paying extraordinary prices for our coal and iron ore. Those prices will ease back but, even so, huge investment in new mines and natural gas facilities is likely to keep the economy growing strongly for at least the rest of the decade.

The other developed economies would kill for prospects as rosy as ours. They're in dire straits and we've won the lottery - with a soaring dollar to prove it. The main challenge is to make sure we end up with something to show for all this good fortune. One thing we need to do is make sure we save a fair bit of the extra income coming our way.

We can do this partly by returning the budget to surplus, paying off government debt and then putting budget surpluses into some kind of sovereign wealth fund we could call on when times got tough again.

But the other big thing we need to do is increase our investment in ''human capital'' - in educating and training our people. It worries a lot of us that digging stuff out of the ground and flogging it to foreigners seems a primitive and unsustainable way to make a living. What do we do when the stuff runs out or the boom busts?

Well, we don't delude ourselves we can get back into manufacturing in a big way, in competition with high-tech countries such as Germany or low-cost ones such as China. That game's over. No, if we're recycling income from primary industry we've got to move it past secondary industry to tertiary - the services sector. Apart from minerals and farming, the main thing we have to sell the world (and meet our domestic needs) is labour.

We've got to make our labour as valuable as possible, which means making it as skilled as possible. And that means becoming obsessed with education and training.

Another way to think about it is: this: we're embarking on a long mining construction boom at a time when our unemployment rate is already below 5 per cent. Few of those unemployed possess much in the way of skills, and shortages of skilled labour are about to become acute.

We can solve this the lazy way by relying largely on bringing in skilled immigrants, or we can make sure more of our own people get to benefit from the resources boom by lifting our game on education and training. We really do need an education revolution at every level - from early childhood development to universities. But one less fashionable area where we must do a lot better is vocational education and training (the government part of which is TAFE - technical and further education).

Yesterday Chris Evans, the Minister for Skills, among many other things, issued a report from Skills Australia, Skills for Prosperity, a ''road map for vocational education and training''. The report says Australia will need an additional 2.4 million skilled workers by 2015 to meet the growing needs of business, after allowing for the replacement of retiring baby boomers. By 2025 we'll need 5.2 million. Many will have to be trained by the voc ed system.

We'll need the output of qualified tradespeople and technicians to grow by about 3 per cent a year over that period. To this end, the report recommends that funding for voc ed be increased by 3 per cent each year in real terms.

This averages real growth in spending of $310 million each year. That's an expensive commitment. But because skilled workers earn more and pay more tax than they otherwise would, the report argues this extra spending will more than pay for itself from the government's perspective. Spending on education and training really is an investment, with an ultimate monetary pay-off for governments, the people receiving the training and the rest of us.

As you can guess, the extra money would come with strings. Merely pouring the extra dough into the voc ed system as it stands would be unlikely to produce as many extra skilled workers as required. The single most important proposed reform involves moving away from funding the institutions providing voc ed to an entitlement system, as already applies to schools and universities. In other words, how much funding training organisations received would depend on their enrolments, thus allowing student demand to determine the allocation of resources for most qualifications.

For all courses there would be ''full contestability'' for public funding between government and private sector providers. This competition and choice is expected to lead to a more responsive and efficient training system. (You can tell what school these guys went to.)

To find and recruit all the extra bodies it would need to meet its targets, the system would need to increase the proportion of disadvantaged people it attracts. Disadvantaged doesn't only mean disabled, it also means early school-leavers and others with inadequate literacy and numeracy.

Voc ed is the part of the education system best suited to picking up the stragglers, so to speak. And part of our effort to make sure we make lasting gains from the resources boom should be doing more to improve the skills - and hence the employability - of people at the bottom of the pile.

Helping the disadvantaged is expensive, but the report says the extra costs can be covered by the system improving its completion rates. These are as low as 20 to 35 per cent at present. That fact alone tells us voc ed is in need of major reform.